Wednesday, February 25, 2009

I hate to be so critical, but almost everything about the following is wrong. It's from Steve, and it's discussing an article by Philip Blond in Prospect Magazine:

Phillip Blond argues that the Tories' conversion to free market liberalism has been a disaster for conservatism and for many of the party's core supporters.

Instead of holding the middle ground, the state was deployed in favour of the owner and entrepreneur. The benefits of Conservative liberalisation in the late 1980s accrued mainly to the top. The middle class saw its rise in income partly offset by more debt, while the poor sank relatively lower. New Labour did little to reverse these trends. In short, Britain remains stuck with a contested, class-based capitalism that has done great damage to British life.

As I have said before, free market economic policies often lead to things that a lot of conservatives don't like. You'll find plenty of Tory voters in the anti-Tesco campaigns which are gaining support around the country and, like everyone else, most conservatives are furious about the crisis that lightly regulated banks have created.

If I knock at the doors of these writers and say I'm collecting for children in need, then knock them over the head and steal their TV sets, when they came round they'd condemn people collecting for children in need.

In the 1980s, as a result of argument beginning the previous decade, the Tories started to pay lip service to free market liberalism. That's all. In policy terms, they used Friedman's monetarist ideas to control inflation (with resultant high unemployment) and this made some people think that because Freidman was a free market liberal, then other Tory policies must also be such.

The idea that "free market liberalism" might consist of deploying the state "in favour of the owner and entrepreneur" is stunningly wrong. It would mean the opposite. The state's role would shrink, in part to make it less easy for owners and entrepreneurs to snuggle up in bed with it and less significant if this happened. Every year of Tory government saw an increase in the scope and spending of the state.

Everyone who has pointed out the utility of free market transactions, from Adam Smith onwards, has pointed out the tendency to corruption between government and businesses, and they have pointed out how this undermines the free market. The free market requires power to move to consumers.

About the only thing that Galbraith and Friedman agreed on, last century, was that businessmen and politicians abuse the term for their own advantage - and that businessmen abhor a free market, whatever they might say. Far better a cosy monopoly, the security of anti-competitive price-fixing or, best of all, a government to extract money from consumers by force, then hand it over to them for overpriced contracts.

Blond is not describing the consequences of liberalism, but of that old corruption that infects every government of every complexion.

The measure of whether or not people like Tesco is not whether they join an anti-Tesco campaign, but whether they shop there. Conservative and Labour, they all do. Steve is lamenting, it seems, the fact that a tiny minority of very affluent people (as anti-Tesco campaigners tend to be) can't stop the rest of us, including the working class and the less well off, shopping at Tesco. After all, the anti-Tesco campaigners shop at Waitrose.

The idea that light regulation was behind the banking crisis is... I'm groping for a polite way to describe it... it's the idea that it's understandable that the structural problems that became apparent could have been overlooked by a regulator. That's cool. More of the same would have fixed it.

This wasn't light regulation, it was ineffective, crony-based regulation. Regulators and bankers swapped jobs, set each others' salaries as non-execs, gave each other bonuses as they played musical chairs.

People who make these kinds of arguments make no attempt to define their terms, and seem oblivious to the possibility that, like the doorstep mugger, there might be a difference between what people say and what they do. They just throw terms like "free market" (and "neo-conservative") around as insults, without reference to whether or not they're talking about the free market (or neo-conservatism).

18 comments:

"The idea that "free market liberalism" might consist of deploying the state "in favour of the owner and entrepreneur" is stunningly wrong. It would mean the opposite. The state's role would shrink"

Not necessarily: if you want to enhance the benefits of genuinely free markets you need state regulation to prevent monopolies, lower barriers to entry, and increase entrepreneurial behaviour by reducing the downside of business failure by increasing welfare benefits.

I agree, free markets also need rigorous enforcement of the law of contract and of property rights (though meritocracy, and Blond is also opposed to this, might require that property rights do not pass down the generations).

It wasn't really an argument at all, just a statement of the obvious: that your defence of a theoretical "free market" against the reality of how merchants freely behave is essentially the same stance that trots in the 80s took on the subject of "state capitalism" (only to receive short shrift from the right for their trouble). Thanks for the acknowledgement.

Having swallowed a dictionary at a young age, I'm sympathetic to your view that words should have set meanings; but it's as unfashionable a position in modern politics as it is in modern linguistics. In everyday practice, terms have only the referents those using them ascribe to them - so just as the USSR was a "communist" state because the Party and its enemies in the west agreed that's what they were going to call the actually-existing system, so "the free market" has just become what both its advocates and its detractors call actually-existing crony capitalism. The existence of an archaic sense of the term, involving such things as voluntary exchange and open access, is really of interest only to historians and a few literal-minded pedants like thee and me.

Advocate a better system by all means, but complaining about misuse of language is a mug's game.

The acknowledgement was in the spirit of fair debate. It was argued by some communists that the Soviet Union wasn't a communist state. On the other hand, many argued it was. Galloway said the day it fell was the worst day of his life. Charlie supported it. PJ O'Rourke wrote of the people who visited it as an example of the future of humanity, but took their own toilet paper.

There's an apparent similarity with some apparent supporters of the free market who spend their time supporting vested interests.

And I can see your argument that this might have shifted the meaning of the term. But the Soviet Union didn't change the meaning of communism entirely. It did operate on a basis of common, or state, ownership. The cronyism you mention isn't a version of the free market, it's the antithesis of it. It's a fig leaf, not a corruption of the term.

So I don't agree that the meaning has changed. The meaning of "liberal" has changed. I rail against that, but accept it has happened. It hasn't happened with free market. There's no new definition, and there is with liberalism. It's just being used for camouflage by some people.

Moreover, as I mentioned in the post, the abuse of the idea of the free market isn't a later development. Adam Smith wrote about it. It's been there from the start. It's not an evolution, it's the old enemy.

As in "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public..." ?

It's true. The last thing a capitalist wants is a free market.

We need to do what the Americans used to do and break up large monopolies and near-monopolies. If there are 25 supermarket companies, and 10 of them get together to fix the maximum prices they'll offer farmers, that's a cartel and they'll go to jail if caught. But if one supermarket takes over the other nine and makes the same offer to the farmer, that's fair trade.

You may notice it doesn't apply to football, which is why IMHO it's not a business in the conventional sense. Man U could probably buy half a dozen Premiership clubs and close them down, but they'd look pretty silly with no one to play against.

Competition is an irritating fact of life in most business, it's the whole point of soccer.

I suppose you could have the same owners for all the top teams, and the games rigged to give the fans the illusion of competition. In fact that seems to be what we have with our political parties !

But Thatcher did deploy the state in favour of business. Breaking the trade unions required massive state intervention, both in the form of policing industrial disputes and laws curbing the activity of trade unions.

Left to its own devices, without regulation businesses tend to form cartels and conspire against the public. To achieve a free market in the way you seem to be defining it, would require continuous state intervention to break up oligopolies.

As for the regulations, even if we'd had the most zealous investigators in the world the FSA had very little power. Cronyism is a convenient excuse. The truth is that the FSA has no teeth, whoever is running it. It is no coincidence that HSBC was the least badly affected of the major banks. That's because many of its operations are run from Hong Kong which as nasty, old fashioned, tough regulations.

Yes, the free market needs the state to intervene as discussed above. It's a misconception that it's a free-for-all. It isn't. It's a situation where people are free to supply or consume, where both are kept honest by the state - law of contract, property rights - and where the state acts to prevent monopoly or monopsony. We already have continuous state intervention. A free market would actually require less but different intervention.

Thatcher did do that. There was a bit more to it than just market economics - there had been terrible abuses of power by trades unions in the 1970s, and the Miner's Strike was a political rather than an industrial action. But for all the talk, she wasn't a free marketeer.

That's true about the FSA. Hong Kong was actually a very free market with the sort of regulation necessary for that to work.